China’s emerging Belt and Road Initiative—BRI, or the so-called “New Silk Road”—aims to improve dramatically trade connectivity between growing industrial production in China and lucrative European markets. As part of the initiative, Beijing also promises to deliver outcomes for transit countries. China is said to be spending several billions of dollars per year in 60-odd countries.

Kazakhstan is a critical node and is now on the verge of China’s embrace. Not surprisingly, the government in Astana is keen to benefit from the project: It seeks to diversify its economy away from exporting oil and natural resources and wants to improve its road and rail infrastructures in order to expand its logistics sector. If successful, this could help Kazakhstan move from being a middle-income to a high-income country.

Our recent visit to Kazakhstan and the Khorgos Eastern Gate area starkly revealed the dilemma that Kazakhstan faces. Here, we argue that for Kazakhstan to become a high-income country, it will be important that the United States, the European Union, and other major Asian countries take a strategic interest in Kazakhstan and its region. Russia is far from offering an economic outlet for Kazakhstan and the rest of Central Asia. By ensuring that BRI does not infringe upon free trade and liberal market principles, the United States and the EU together can help Kazakhstan to truly prosper, while also protecting the international liberal economic order.

Discovering Khorgos

Our exposure to the Khorgos Eastern Gate began with a visit to tax-free shopping malls that straddle the Chinese-Kazakhstani border. In contrast to the bustling nature of the Chinese side, the Kazakhstani side was quiet. The practically empty shop we stepped into had shelves filled with Chinese products. It looked like a Chinese outlet rented by Chinese traders to cater to (presumably) primarily Chinese customers.

The picture we saw depicts the cusp of potentially major Chinese influence. The once-sleepy Kazakhstani region next to the Chinese border, long considered the middle of nowhere, now hosts the China-Kazakhstan tax-free border zone (administered by the International Center for Business Cooperation, or ICBC), the Khorgos Gateway Dry Port, the Altynkol railway crossing, and a major land crossing under construction. There is also a plan to build a city of 100,000 to house the people to be employed there. Could Khorgos—which sits, geographically, at the center of the Asian continent—become the “Rotterdam of the future,” as some have predicted?

Kazakhstan is the ninth-largest country in the world in terms of territory, but its population and GDP are utterly dwarfed by its neighbor China. Its national population is less than that of Beijing alone, and its economy was less than 1/45th the size of China’s in 2016.

But its value to China is significant: Kazakhstan is a key transportation belt to get Chinese products to markets in Europe. Chinese interest in the country is both a blessing and a curse. China boasts that Kazakhstan joins 67 other countries (according to the latest count) in receiving Chinese-built infrastructure networks (railways, roads, digital facilities, ports, airports, energy plants); but at the same time, it risks becoming overwhelmed by Chinese economic influence. Some fear the country’s sovereignty could be eroded.

Khorgos by the numbers

Khorgos—a bustling town along the old Silk Road almost a millennium ago, but one that lost its commercial vitality in medieval times as trade shifted to sea routes—is reawakening under the Chinese-driven project.

The nearby Altynkol train station received 40,000 containers in the first 10 months of 2017, double last year’s traffic. The ultimate goal is for trains to be able to travel the 3,000 kilometers across Kazakhstan from China via Khorgos, all the way to the Caspian Sea and into Russia. Trains are expected to travel 11,500 kilometers from Lianyungang in the Eastern Chinese province of Jiangsu to Duisburg in Germany—again, via Khorgos—in 13 to 15 days (it currently takes about a month for ships to travel from China to Europe). Currently, five cargo trains per day come through this station. “The goal is 40 per day” says one of the operators, a Kazakhstani man fluent in Mandarin.

A new land border crossing connecting Khorgos with its Chinese counterpart Horgos is also nearing completion. This ultra-modern crossing will eventually handle 2,200 trucks and 300 small vehicles every 24 hours. An impressive four-lane highway begins here, too: what will become the “Western China-Western Europe Highway.” But at the old land crossing a few miles away, we saw a long line of trucks on the Kazakhstani side of the border waiting to clear Chinese customs—suggesting ongoing efficiency shortfalls and/or the possibility that there are politically-motivated obstacles to a freer flow of traffic.

Nevertheless, the Khorgos Gateway Dry Port and a logistics zone are slowly coming online, and a multi-billion-dollar proposed industrial park aspires to attract tax-free foreign direct investments. The Dry Port container yard—managed by Dubai-based Phoenix Mills—is running at low capacity now, but can handle 18,000 containers with a plan to double that within a year. Two huge 41-ton gantry cranes tasked to handle these containers dominate the landscape of these Eurasian steppes.

Meanwhile, the Kazakhstani side of the tax-free zone is being equipped with duty free shopping malls, hotels, restaurants, and even a museum, as well as possibly a casino and a local amusement park to attract Chinese tourists. While Kazakhstani officials are keen to display the models showing how all this will look like once completed, for the time being, the only activity comes from Kazakhstani nationals who travel to the tax-free zone. About 4,500 of them come daily to this zone by bus or train from Kazakhstan’s largest city Almaty—and from smaller towns—to buy cheap(er) Chinese goods. In addition, 15,000 Chinese traders and shoppers do the same, but seem to stay on the Chinese side of the zone for now.

The possibilities are wide, but remain vague and long-term, like the BRI itself. On the Chinese side of the border, there is a nascent line of skyscrapers, and the population is said to hover around 100,000, with new companies moving in (at Beijing’s encouragement). Time will tell whether the Kazakhstani side will come to resemble the Chinese one.

Chinese business in Kazakhstan is booming anyway, encouraged by Beijing’s credits—often via the China Development Bank or the China Export-Import Bank. However, these credits often come with strings favoring Chinese companies, products, and labor. This complicates Astana’s efforts to support the development of small- and medium-sized enterprises to operate along the “New Silk Road.” It’s hard to see how local capital (let alone foreign direct investment from the West or Japan) would compete with the gargantuan China.

The asymmetry could be concerning. The Chinese influx is occurring at a time when Western governmental and private sector interest in Central Asia is at best limited, at worst receding. As for Russia, the traditional hegemon of the region: It still carries a strong political and cultural weight, but its Eurasian Economic Union so far has not offered an economic alternative to China’s BRI.

“Public opinion seems to be in a countercycle to the government: while the political elites are warming up for a tight embrace with China, ordinary citizens seem to be growing more worried, with discussions of the ‘China threat’ serving as a staple of public discourse on security and the future of the country.”

While Kazakhstani government welcomes Chinese investments, it clearly must take public perceptions into account. China appears determined to use the Belt and Road Initiative to expand its political and cultural influence. “China’s political influence is still minimal,” sinologist Konstantin Syroyezhkin told us, but he points out that between 2013 and 2016, the number of Kazakhtani students in China has tripled to 15,000 per year. However, he also warns that in the end, Kazakhstan is walking a shaky path alongside its giant neighbor. It needs to expand and develop its economy in times of political uncertainties, yet rising cooperation with China is not without risks.

The Belt and Road Initiative remains a work in progress, with many uncertainties. For the time being, it is still vastly more profitable to ship goods by sea from Asia to Europe than through land. For example, most freight trains travelling from China to Europe via Central Asia have returned empty. This may offer some breathing room for Kazakhstan to better prepare itself.

Moreover, Kazakhstan is and will remain part of a Russian-speaking sphere, legacy of Tsarist Russia and the Soviet Union, and has little in common with the culture of the former Middle Kingdom. This too may provide Kazakhstan a layer of protection—but ironically, in the long run, all the infrastructure being put into place at Khorgos is likely to serve the interests of the Chinese juggernaut. How long will these layers of protection last? Will Kazakhstan be able to cash in on the “New Silk Road” and bring new prosperity to its population without suffocating under the Chinese embrace?

The answer to these questions is more likely to be in the positive if other economic powers take more interest in Kazakhstan. The window of opportunity is likely to close very quickly before the Kazakhtani leg of BRI fast transforms the country into an open market for primarily China. Once this happens, Kazakhstan will have succumbed to Chinese terms of trade and investment. This may well weaken and undermine the U.S.-led international liberal economic order. It is time the industrialized world start looking at Kazakhstan—and Khorgos in particular—as strategic spots.

]]>
By Kemal Kirişci, Philippe Le Corre
China’s emerging Belt and Road Initiative—BRI, or the so-called “New Silk Road”—aims to improve dramatically trade connectivity between growing industrial production in China and lucrative European markets. As part of the initiative, Beijing also promises to deliver outcomes for transit countries. China is said to be spending several billions of dollars per year in 60-odd countries.
Kazakhstan is a critical node and is now on the verge of China’s embrace. Not surprisingly, the government in Astana is keen to benefit from the project: It seeks to diversify its economy away from exporting oil and natural resources and wants to improve its road and rail infrastructures in order to expand its logistics sector. If successful, this could help Kazakhstan move from being a middle-income to a high-income country.
Our recent visit to Kazakhstan and the Khorgos Eastern Gate area starkly revealed the dilemma that Kazakhstan faces. Here, we argue that for Kazakhstan to become a high-income country, it will be important that the United States, the European Union, and other major Asian countries take a strategic interest in Kazakhstan and its region. Russia is far from offering an economic outlet for Kazakhstan and the rest of Central Asia. By ensuring that BRI does not infringe upon free trade and liberal market principles, the United States and the EU together can help Kazakhstan to truly prosper, while also protecting the international liberal economic order.
Discovering Khorgos
Our exposure to the Khorgos Eastern Gate began with a visit to tax-free shopping malls that straddle the Chinese-Kazakhstani border. In contrast to the bustling nature of the Chinese side, the Kazakhstani side was quiet. The practically empty shop we stepped into had shelves filled with Chinese products. It looked like a Chinese outlet rented by Chinese traders to cater to (presumably) primarily Chinese customers.
The picture we saw depicts the cusp of potentially major Chinese influence. The once-sleepy Kazakhstani region next to the Chinese border, long considered the middle of nowhere, now hosts the China-Kazakhstan tax-free border zone (administered by the International Center for Business Cooperation, or ICBC), the Khorgos Gateway Dry Port, the Altynkol railway crossing, and a major land crossing under construction. There is also a plan to build a city of 100,000 to house the people to be employed there. Could Khorgos—which sits, geographically, at the center of the Asian continent—become the “Rotterdam of the future,” as some have predicted?
Kazakhstan is the ninth-largest country in the world in terms of territory, but its population and GDP are utterly dwarfed by its neighbor China. Its national population is less than that of Beijing alone, and its economy was less than 1/45th the size of China’s in 2016.
But its value to China is significant: Kazakhstan is a key transportation belt to get Chinese products to markets in Europe. Chinese interest in the country is both a blessing and a curse. China boasts that Kazakhstan joins 67 other countries (according to the latest count) in receiving Chinese-built infrastructure networks (railways, roads, digital facilities, ports, airports, energy plants); but at the same time, it risks becoming overwhelmed by Chinese economic influence. Some fear the country’s sovereignty could be eroded.
Khorgos by the numbers
Khorgos—a bustling town along the old Silk Road almost a millennium ago, but one that lost its commercial vitality in medieval times as trade shifted to sea routes—is reawakening under the Chinese-driven project.
The nearby Altynkol train station received 40,000 containers in the first 10 months of 2017, double last year’s traffic. The ultimate goal is for trains to be able to travel the 3,000 kilometers across Kazakhstan from China via ... By Kemal Kirişci, Philippe Le Corre
China’s emerging Belt and Road Initiative—BRI, or the so-called “New Silk Road”—aims to improve dramatically trade connectivity between growing industrial production in ... https://www.brookings.edu/blog/future-development/2017/12/18/creating-markets-in-kazakhstan/Creating markets in Kazakhstanhttp://webfeeds.brookings.edu/~/511392820/0/brookingsrss/topics/centralasia~Creating-markets-in-Kazakhstan/
Mon, 18 Dec 2017 19:36:11 +0000https://www.brookings.edu/?p=471634

Global GDP today is an estimated $75 trillion, of which Europe’s GDP is about $20 trillion and Asia’s is nearly $30 trillion. Of the almost 2 billion people who are expected to join the global middle class in the next decade, 85 percent live in China and India. The resulting growth in consumer demand offers a great opportunity for Central Asian countries to create new markets. This is especially true of Kazakhstan, which is located smack in the center of China’s “new Silk Road”—the broad infrastructure and market-building initiative linking Asia to Europe. The big question is how to quickly realize this potential.

A team of people from the World Bank and the International Finance Corporation (IFC), with support from Duke University, tried to answer this question, reported in the World Bank Group’s Country Private Sector Diagnostic for Kazakhstan. The short answer: it will depend on Kazakhstan’s private markets, but its government can help a lot—or hinder greatly.

A few facts

Kazakhstan, an upper-middle-income economy, hopes to quickly get to high-income levels. It depends on oil; in 2013, before oil prices dropped by half, much of its exports and government revenues came from oil and gas. With a GDP per capita of just over $7,500 (2016, nominal), Kazakhstan could reach high-income status within a decade if its economy grows at about 7 percent annually. To do this, it will have to do more than just exploit and export natural resources. A structural shift in the economy toward greater competitiveness in non-energy tradable goods and services will be needed, but it will have to be brought about by investments in productivity, human capital, and innovation, not merely by pumping oil and gas rents into non-extractive businesses.

Activities with the most potential

Given its location, size, and endowments, Kazakhstan has a comparative advantage in tradable sectors. But that includes a wide range of goods and services. Using a simple methodology, we tried to assess which sectors hold the most promise, what’s holding them back, and what the government could do to help. The approach had three steps:

Identifying sectors with greatest market potential that—if realized—would have the greatest impact on development objectives.

Providing an assessment of what is preventing the realization of market potential.

Indicating the activities that should be prioritized to meet the double bottom line of development impact and private profitability.

Based on the government’s 2030 strategy and 2020 plan, Kazakhstan’s development objectives are to increase diversification, employment, and productivity. Since the work was sponsored by the IFC, the task was essentially to put into use the IFC 3.0 Strategy in Kazakhstan. This meant identifying the markets with the greatest potential to help meet the country’s development objectives.

Figure 1: New markets in Kazakhstan

The assessment indicated that the sectors with sizable unrealized development and market potential are grains, meat, and cross-Kazakhstan transport. The market potential assessment relied on quantitative tools (multiplier models, product space, and competitiveness benchmarking), expert interviews, and a survey of policy reports. The development impact assessment was largely heuristic, though the team carried out a fuller analysis of one measure of market potential (GDP) and one development objective (employment). Finally, for each of the three sectors, we estimated the market potential, identified critical investments and policy reforms, and suggested the key market players.

“Deep dives” for grains, meat, and cross-Kazakhstan logistics provided estimates of current and potential market size by sub sector (e.g., beef, sheep, and chicken for the meat sector). Based on analysis by industry experts, they essentially provide the elements of a strategy for each of these three sectors.

The sector analysis included a cataloging of the key players and helped toward identifying promising investments, loans, and other activities for the IFC to consider, and the institutional reforms and infrastructure gaps for the World Bank and others to take up in their discussions with government.

Our top three—wheat, livestock, and logistics

The sectors with the most development potential included wheat, livestock, and transport and logistics, for the following reasons:

Wheat. Wheat is a staple consumed by all segments of society, rich and poor alike and the growing middle-class consumption across Asia, especially in China, will drive up demand for wheat. Kazakhstan, as one the world’s major wheat producers, stands to benefit by tapping into these new markets, but only if export competitiveness can be improved (Figure 2). Kazakhstan is currently the least productive of all major global producers, with less than half the average yields per hectare of countries like Canada and Russia.

Figure 2: Growing Kazakhstan’s grain markets

Livestock. As the size of the middle class in China and South Asia continues to grow rapidly, demand for more expensive meat products will expand. With vast expanses of rangeland, availability of feed (including wheat), low production costs and close proximity to potential markets, Kazakhstan is well-positioned to expand its livestock exports and livestock food-processing industry.

Transport and logistics. Kazakhstan is a natural transit corridor of the new Silk Road, and rail and road transport will see a revival due to the westward shift of production in China away from the more expensive east of the country. Currently, Kazakhstan is only scratching the surface of the potential for container-based trade between China and the European Union, with just 1 percent of the total transiting the country. With trade facilitation reforms and technological innovations (for example, semi-autonomous vehicles), transport time and costs could be dramatically reduced, making the option of transiting through Kazakhstan far more attractive.

Figure 3: Realizing market potential—and making a big development impact

improving the double bottom line

There are obstacles at the economy wide and sector level that will need to be removed to create new markets. We tried to identify how to remove them through deep-dives. The countrywide issues relate largely to constraints in the business climate for the private sector including a complex regulatory environment, concerns with governance and informality, and the stifling dominance of state-owned enterprises. These deter investment, undermine corporate governance and render cross-border trade inefficient and costly.

In wheat, corporate restructuring and subsidy reform will be necessary to attract private investment and usher in badly needed productivity improvements. Improved transport and logistics and market access by facilitating trade would increase the competitiveness of Kazakhstan’s enterprises and to penetrate new markets and value chains.

In the livestock sector, for Kazakhstan to become a successful regional player it will need to invest in quality improvements, such as testing and monitoring to meet international quality and phytosanitary standards. As with wheat, the livestock sector needs better transport and logistics, streamlined procedures, and other measures to facilitate trade.

In the transport and logistics sector, investment in state-of-the-art risk management systems and an integrated information technology backbone will be essential to reduce costs and speed up the movement of goods. The upgrading of rail and road networks and the introduction of seamless multimodal connectivity is necessary for Kazakhstan to compete not just in agro-processing, but also more generally to position itself as a viable transit route between China and Western Europe. This will require liberalization of markets for advanced players in intermodal logistics operations.

As a result of the reforms needed, the “shovel readiness” of the investments differs by sector: It is greatest for grains, somewhat less for meat, and least for transport (Figure 4).

Figure 4: Creating markets in Kazakhstan

Kazakhstan can rekindle economic growth and achieve its development ambitions by enabling markets in ways that increase productivity and export competitiveness. Based on analysis, experience and conversations with market players, wheat, livestock, and transport and logistics seem to be the markets with greatest potential. Investment in these activities promises both private profit and development dividends—more jobs, greater productivity, and lower volatility.

]]>
https://www.brookings.edu/wp-content/uploads/2017/12/global_kazakhstan_wheatfield.jpg?w=264By Wolfgang Fengler, Indermit Gill, Christopher Miller, Aimilios Chatzinikolaou
Global GDP today is an estimated $75 trillion, of which Europe’s GDP is about $20 trillion and Asia’s is nearly $30 trillion. Of the almost 2 billion people who are expected to join the global middle class in the next decade, 85 percent live in China and India. The resulting growth in consumer demand offers a great opportunity for Central Asian countries to create new markets. This is especially true of Kazakhstan, which is located smack in the center of China's “new Silk Road”—the broad infrastructure and market-building initiative linking Asia to Europe. The big question is how to quickly realize this potential.
A team of people from the World Bank and the International Finance Corporation (IFC), with support from Duke University, tried to answer this question, reported in the World Bank Group’s Country Private Sector Diagnostic for Kazakhstan. The short answer: it will depend on Kazakhstan’s private markets, but its government can help a lot—or hinder greatly.
A few facts
Kazakhstan, an upper-middle-income economy, hopes to quickly get to high-income levels. It depends on oil; in 2013, before oil prices dropped by half, much of its exports and government revenues came from oil and gas. With a GDP per capita of just over $7,500 (2016, nominal), Kazakhstan could reach high-income status within a decade if its economy grows at about 7 percent annually. To do this, it will have to do more than just exploit and export natural resources. A structural shift in the economy toward greater competitiveness in non-energy tradable goods and services will be needed, but it will have to be brought about by investments in productivity, human capital, and innovation, not merely by pumping oil and gas rents into non-extractive businesses.
Activities with the most potential
Given its location, size, and endowments, Kazakhstan has a comparative advantage in tradable sectors. But that includes a wide range of goods and services. Using a simple methodology, we tried to assess which sectors hold the most promise, what’s holding them back, and what the government could do to help. The approach had three steps:
- Identifying sectors with greatest market potential that—if realized—would have the greatest impact on development objectives. - Providing an assessment of what is preventing the realization of market potential. - Indicating the activities that should be prioritized to meet the double bottom line of development impact and private profitability.
Based on the government’s 2030 strategy and 2020 plan, Kazakhstan's development objectives are to increase diversification, employment, and productivity. Since the work was sponsored by the IFC, the task was essentially to put into use the IFC 3.0 Strategy in Kazakhstan. This meant identifying the markets with the greatest potential to help meet the country’s development objectives.
Figure 1: New markets in Kazakhstan
The assessment indicated that the sectors with sizable unrealized development and market potential are grains, meat, and cross-Kazakhstan transport. The market potential assessment relied on quantitative tools (multiplier models, product space, and competitiveness benchmarking), expert interviews, and a survey of policy reports. The development impact assessment was largely heuristic, though the team carried out a fuller analysis of one measure of market potential (GDP) and one development objective (employment). Finally, for each of the three sectors, we estimated the market potential, identified critical investments and policy reforms, and suggested the key market players.
“Deep dives” for grains, meat, and cross-Kazakhstan logistics provided estimates of current and potential market size by sub sector (e.g., beef, sheep, and chicken for the meat sector). Based on analysis by ... By Wolfgang Fengler, Indermit Gill, Christopher Miller, Aimilios Chatzinikolaou
Global GDP today is an estimated $75 trillion, of which Europe’s GDP is about $20 trillion and Asia’s is nearly $30 trillion. Of the almost 2 billion ... https://www.brookings.edu/blog/future-development/2017/09/22/future-development-reads-chinas-belt-and-road-initiative/Future Development Reads: China’s Belt and Road Initiativehttp://webfeeds.brookings.edu/~/460698810/0/brookingsrss/topics/centralasia~Future-Development-Reads-China%e2%80%99s-Belt-and-Road-Initiative/
Fri, 22 Sep 2017 15:04:23 +0000https://www.brookings.edu/?p=455501

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By Indermit Gill

If you’re like me and my colleagues here at Duke University, you don’t know what to make of Chinese President Xi Jinping’s Belt and Road Initiative (BRI is the new acronym, the old one was OBOR for One Belt One Road). Is it just a way for China to put its excess construction workforce, steel and cement production, and burgeoning bank balances to work, or is it the first part of a grand plan to take over the role of hegemon? Is it both, or something else? I’m going to recommend some readings that might help you make up your mind.

Though it was launched in 2013, these are early days for BRI, and much of what’s out there is journalistic stuff. So don’t expect rigorous analysis. But I plan to use this blog to keep readers informed about the BRI, and you can expect reads that are progressively more serious.

Figure 1: The Belt (red) and the Road (blue)

What is the Belt and Road Initiative?

This article by Geoff Wade provides a crisp summary of the initiative, calling it “a Chinese economic and strategic agenda by which the two ends of Eurasia, as well as Africa and Oceania, are being more closely tied along two routes—one overland and one maritime.” While it formally covers greater development cooperation, infrastructure networks, trade, financial cooperation, and cultural exchanges, infrastructure is getting all of the attention.

More than 65 countries have signed on. This article has a map that shows the members of the BRI: essentially every country in Asia and East and Central Europe, except for Australia, Japan, New Zealand, and South Korea. Participant countries have more than half the world’s population and about a third of global GDP. Annual investments of about $150 billion are envisaged for the next decade. At the Belt and Road Forum in May, China pledged about $125 billion in financing.

China is putting a lot of money into the BRI. In 2016 China reportedly made about $30 billion of acquisitions in BRI countries; this year, it has already made more than that. This is at a time when the government has been discouraging offshore acquisitions by Chinese firms. Regulators have obviously been told to prioritize BRI investments.

The BRI is not to be confused with the China-based Asian Infrastructure Investment Bank. David Dollar explains the difference. The AIIB was launched in 2016 and has 56 member countries (Australia, New Zealand and South Korea are members). The AIIB is just one of the financial institutions funding investments that are part of the BRI.

The Heritage Foundation advises U.S. policymakers to watch out. Developments in Central Asia are especially telling: China’s trade with the five Central Asian states (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) is already more than double their trade with Russia.

What does China expect to get out of it?

“Its ultimate aim is to make Eurasia (dominated by China) an economic and trading area to rival the transatlantic one (dominated by America). Behind this broad strategic imperative lie a plethora of secondary motivations…. By investing in infrastructure, Mr. Xi hopes to find a more profitable home for China’s vast foreign-exchange reserves, most of which are in low-interest-bearing American government securities. He also hopes to create new markets for Chinese companies, such as high-speed rail firms, and to export some of his country’s vast excess capacity in cement, steel, and other metals. By investing in volatile countries in central Asia, he reckons he can create a more stable neighborhood for China’s own restive western provinces of Xinjiang and Tibet. And by encouraging more Chinese projects around the South China Sea, the initiative could bolster China’s claims in that area (the “road” in “belt and road” refers to sea lanes).”

David Dollar explains why China considers it urgent. In the six years before the financial crisis, the Chinese economy was growing at 11 percent each year with an investment to GDP ratio of just over 40 percent. In the six years after the crisis, the growth rate has averaged 7 percent with an investment-to-GDP ratio of 50 percent. The Chinese are justified in finding ways to grow more efficiently, and the BRI should be seen as the external component of the strategy; the domestic agenda is equally complex.

What should others do to make the most of the initiative?

About a year ago, the Economist Intelligence Unit provided what I thought was the most comprehensive country-by-country list of activities that could be included in the BRI. It is mostly about infrastructure.

What should get a lot more attention are the social, environmental, and political implications of the BRI for the countries that benefit from greater infrastructure investments and increased road, rail, and sea traffic.

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https://www.brookings.edu/wp-content/uploads/2017/09/rtx38fem.jpg?w=294By Indermit Gill
If you’re like me and my colleagues here at Duke University, you don’t know what to make of Chinese President Xi Jinping’s Belt and Road Initiative (BRI is the new acronym, the old one was OBOR for One Belt One Road). Is it just a way for China to put its excess construction workforce, steel and cement production, and burgeoning bank balances to work, or is it the first part of a grand plan to take over the role of hegemon? Is it both, or something else? I’m going to recommend some readings that might help you make up your mind.
Though it was launched in 2013, these are early days for BRI, and much of what’s out there is journalistic stuff. So don’t expect rigorous analysis. But I plan to use this blog to keep readers informed about the BRI, and you can expect reads that are progressively more serious.
Figure 1: The Belt (red) and the Road (blue)
What is the Belt and Road Initiative?
This is the official explanation by China’s National Development and Reform Commission, the lead agency for the BRI.
This article by Geoff Wade provides a crisp summary of the initiative, calling it a Chinese economic and strategic agenda by which the two ends of Eurasia, as well as Africa and Oceania, are being more closely tied along two routes—one overland and one maritime.” While it formally covers greater development cooperation, infrastructure networks, trade, financial cooperation, and cultural exchanges, infrastructure is getting all of the attention.
More than 65 countries have signed on. This article has a map that shows the members of the BRI: essentially every country in Asia and East and Central Europe, except for Australia, Japan, New Zealand, and South Korea. Participant countries have more than half the world’s population and about a third of global GDP. Annual investments of about $150 billion are envisaged for the next decade. At the Belt and Road Forum in May, China pledged about $125 billion in financing.
China is putting a lot of money into the BRI. In 2016 China reportedly made about $30 billion of acquisitions in BRI countries; this year, it has already made more than that. This is at a time when the government has been discouraging offshore acquisitions by Chinese firms. Regulators have obviously been told to prioritize BRI investments.
The BRI is not to be confused with the China-based Asian Infrastructure Investment Bank. David Dollar explains the difference. The AIIB was launched in 2016 and has 56 member countries (Australia, New Zealand and South Korea are members). The AIIB is just one of the financial institutions funding investments that are part of the BRI.
The Heritage Foundation advises U.S. policymakers to watch out. Developments in Central Asia are especially telling: China’s trade with the five Central Asian states (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) is already more than double their trade with Russia.
What does China expect to get out of it?
The Economist explains what’s in it for China.
“Its ultimate aim is to make Eurasia (dominated by China) an economic and trading area to rival the transatlantic one (dominated by America). Behind this broad strategic imperative lie a plethora of secondary motivations…. By investing in infrastructure, Mr. Xi hopes to find a more profitable home for China’s vast foreign-exchange reserves, most of which are in low-interest-bearing American government securities. He also hopes to create new markets for Chinese companies, such as high-speed rail firms, and to export some of his country’s vast excess capacity in cement, steel, and other metals. By investing in volatile countries in central Asia, he reckons he can create a more stable neighborhood for China’s own restive western provinces of Xinjiang and Tibet. And by encouraging more Chinese projects ... By Indermit Gill
If you’re like me and my colleagues here at Duke University, you don’t know what to make of Chinese President Xi Jinping’s Belt and Road Initiative (BRI is the new acronym, the old one was OBOR for One Belt One ... https://www.brookings.edu/blog/future-development/2017/05/18/can-nudge-do-more-than-regulation-the-case-for-a-behavioral-approach-to-financial-capability/Can nudge do more than regulation? The case for a behavioral approach to financial capabilityhttp://webfeeds.brookings.edu/~/325395056/0/brookingsrss/topics/centralasia~Can-nudge-do-more-than-regulation-The-case-for-a-behavioral-approach-to-financial-capability/
Thu, 18 May 2017 18:58:05 +0000https://www.brookings.edu/?p=404136

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By Colleen Mascenik

Imagine a very low-income country, where women predominantly give birth in their homes and sick people are cared for and die at home. If you wanted to step in and make a measurable change to reduce mortality in two years, would you (a) draft regulations, provide trainings, and organize study tours for the ministry of health, or (b) get people to wash their hands twice as frequently?

I posed this question last week to a team of development partners in Vienna, Austria. The message seemed to sink in immediately. However, it’s rarely so clear-cut in practice, and that’s a missed opportunity.

In most cases, a representative of the government, an agency, or ministry approaches a development organization for support, not the child with bacteria in his fingernails. Development teams are composed of lawyers, former regulators, former industry professionals, not consumer researchers, behavioral designers, or psychologists. So it’s clear to see why the client and development assistance provider identify with one another so easily.

Let’s use this example to discuss finance. It seems natural that the financial sector of development involves central bankers, ministry of finance officials, and financial service providers. But let’s consider Tajikistan, where 2 percent of adults have an account at a formal financial institution, and most borrowing happens within families. The question of “last mile” and “inclusive” finance here has been misapplied to micro-credit, in my view, with the consequence that expensive, often dollar-denominated credit has exacerbated the vulnerability of the poorest, many of whom now borrow to eat. The question of inclusive savings is hard to say with a straight face, where banks are going bust and the regulator is hardly independent. One of my colleagues working in the area joked that “domestic deposits are savings for the naïve.”

How to be helpful in such a country? Think back to hand washing. What does it mean to have healthy habits with money, and how do we get there? Setting aside the typical counterparts and the worn-out concepts about financial “literacy” (e.g., textbook knowledge, understanding risk/return, calculating compound interest rates), we set out to define terms for healthy financial habits understood by the low-income mother in Konibodom with savings in a jar under the floorboards as well as by the salaried banker in Dushanbe, the capital of Tajikistan. “I feel in control of my financial situation.” “I have a financial goal.” “I have discussed my financial goal with my family.” “If I needed $50 tomorrow, I am confident I could get it.” Using simple visuals like happy and unhappy faces, we asked respondents to tell us how they felt about these statements, scaled their responses from 1-10, and indexed a number of measures into a composite “wellness” score. These statements aren’t original; they’re adapted from similar measures by United Kingdom’s financial market conduct watchdog and the United States Federal Reserve.

We then applied two approaches to try to change the way people in Tajikistan would respond to those statements. The first was educational entertainment. The “Sugd Mama” radio call-in shows air in Sugd province during morning rush-hour, catering to an audience of young mothers (the primary domestic spenders) with no-nonsense advice about money, smart food planning, extending the life of shoes and clothing, keeping apartments warm for less, trouble-shooting kids’ illnesses, and planning family events on a budget. The show has reached more than a million listeners and has an active Facebook following. It’s part of a system of entertaining content with behavior nudges, with similar television and radio programs seen in Kenya, Cambodia, Nigeria, Ghana, and elsewhere.

The second approach takes lessons from earlier experimental evidence showing the significant advantages of individualized financial counseling and goal setting and behavioral economic research applied to financial decisionmaking. We set out to change financial consumer attitudes and behaviors through individualized counseling. Since piloting the approach in four regions in Kyrgyzstan and Tajikistan in 2016 with a six-month assessment, we have shown the positive impacts of a 30-minute individualized consultation, even by amateurs. Counseling prompts consumers to set financial goals, discuss money among family, set budgets, realize savings, improve nutrition, and reduce overall loan exposure. Work in Central Asia also suggested that development partners could leverage the goodwill and research interests of business and finance university students to mobilize a team of experimental counsellors, bringing together the dual-objectives of helping consumers and conducting market research in one, a more sustainable project.

We’re excited to see how a behavior-driven approach can be applied further, and glad the development community begins to see behavioral design as a professional skillset. With some initial progress in U.K. and U.S. policy circles, these approaches still have a long way to go. Hopefully, sharing results that combine development impacts and numbers with behavior approaches will help to advance this work.

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By Colleen Mascenik
Imagine a very low-income country, where women predominantly give birth in their homes and sick people are cared for and die at home. If you wanted to step in and make a measurable change to reduce mortality in two years, would you (a) draft regulations, provide trainings, and organize study tours for the ministry of health, or (b) get people to wash their hands twice as frequently?
I posed this question last week to a team of development partners in Vienna, Austria. The message seemed to sink in immediately. However, it’s rarely so clear-cut in practice, and that’s a missed opportunity.
In most cases, a representative of the government, an agency, or ministry approaches a development organization for support, not the child with bacteria in his fingernails. Development teams are composed of lawyers, former regulators, former industry professionals, not consumer researchers, behavioral designers, or psychologists. So it’s clear to see why the client and development assistance provider identify with one another so easily.
Let’s use this example to discuss finance. It seems natural that the financial sector of development involves central bankers, ministry of finance officials, and financial service providers. But let’s consider Tajikistan, where 2 percent of adults have an account at a formal financial institution, and most borrowing happens within families. The question of “last mile” and “inclusive” finance here has been misapplied to micro-credit, in my view, with the consequence that expensive, often dollar-denominated credit has exacerbated the vulnerability of the poorest, many of whom now borrow to eat. The question of inclusive savings is hard to say with a straight face, where banks are going bust and the regulator is hardly independent. One of my colleagues working in the area joked that “domestic deposits are savings for the naïve.”
How to be helpful in such a country? Think back to hand washing. What does it mean to have healthy habits with money, and how do we get there? Setting aside the typical counterparts and the worn-out concepts about financial “literacy” (e.g., textbook knowledge, understanding risk/return, calculating compound interest rates), we set out to define terms for healthy financial habits understood by the low-income mother in Konibodom with savings in a jar under the floorboards as well as by the salaried banker in Dushanbe, the capital of Tajikistan. “I feel in control of my financial situation.” “I have a financial goal.” “I have discussed my financial goal with my family.” “If I needed $50 tomorrow, I am confident I could get it.” Using simple visuals like happy and unhappy faces, we asked respondents to tell us how they felt about these statements, scaled their responses from 1-10, and indexed a number of measures into a composite “wellness” score. These statements aren’t original; they’re adapted from similar measures by United Kingdom’s financial market conduct watchdog and the United States Federal Reserve.
We then applied two approaches to try to change the way people in Tajikistan would respond to those statements. The first was educational entertainment. The “Sugd Mama” radio call-in shows air in Sugd province during morning rush-hour, catering to an audience of young mothers (the primary domestic spenders) with no-nonsense advice about money, smart food planning, extending the life of shoes and clothing, keeping apartments warm for less, trouble-shooting kids’ illnesses, and planning family events on a budget. The show has reached more than a million listeners and has an active Facebook following. It’s part of a system of entertaining content with behavior nudges, with similar television and radio programs seen in Kenya, Cambodia, Nigeria, Ghana, and ... By Colleen Mascenik
Imagine a very low-income country, where women predominantly give birth in their homes and sick people are cared for and die at home. If you wanted to step in and make a measurable change to reduce mortality in two years, would ... https://www.brookings.edu/blog/order-from-chaos/2017/04/18/how-predatory-crime-and-corruption-in-afghanistan-underpin-the-taliban-insurgency/How predatory crime and corruption in Afghanistan underpin the Taliban insurgencyhttp://webfeeds.brookings.edu/~/294351420/0/brookingsrss/topics/centralasia~How-predatory-crime-and-corruption-in-Afghanistan-underpin-the-Taliban-insurgency/
Tue, 18 Apr 2017 20:47:23 +0000https://www.brookings.edu/?p=398097

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By Vanda Felbab-Brown

Afghanistan is once again on the cusp of a bloody fighting season, which this year didn’t even relent during the winter. In fact, since 2014 the Taliban has mounted and sustained its toughest military campaign yet, and the war has become bloodier than ever. Extensive predatory criminality, corruption, and power abuse—not effectively countered by the Afghan government—have facilitated the Taliban’s entrenchment.

The transition choices by the Afghan government and the international community—including the embrace of problematic warlords for the sake of short-term military battlefield advantages, and as tools of political co-optation—shaped and reinforced criminality and corruption in the post-2001 Afghanistan. In turn, this delegitimized the post-Taliban political dispensation. Indeed, generalized predatory criminality in Afghanistan lies at the crux of Afghanistan’s dire and fragile predicament.

[G]eneralized predatory criminality in Afghanistan lies at the crux of Afghanistan’s dire and fragile predicament.

Missed opportunities

In a report for the United Nations University on the effects of crime and illicit economies on conflict and post-conflict dynamics in Afghanistan, I identify four possible inflection points where the international community and Afghan government could have fundamentally altered the course after the initial choices on the informal distribution of power and its connections to criminality were made in 2001: 1) the 2004 disarmament effort; 2) the beginning of the Obama administration and its surge of resources in Afghanistan; 3) the 2014 formation of the National Unity Government (NUG)—whose two protagonists, President Ashraf Ghani and CEO Abdullah Abdullah crucially campaigned on an anti-corruption platform; and 4) the October 2015 Taliban takeover of Kunduz City.

But the international community and the Afghan government failed to take advantage of these possible inflection points to tackle corruption and criminality, limit power abuse, strengthen the rule of law, and expand political inclusiveness. Or to the extent that they tried—such as during the first two years of the Obama administration—other strategic directives, timelines, and imperatives interfered with them and directly contradicted them. Thus, the anti-corruption and anti-criminality efforts were not underpinned by political heft and power, such as cutting off aid to or otherwise sanctioning particular powerbrokers.

Wrong moves

No doubt, the Taliban itself has become deeply involved in all kinds of illicit economies, including drugs, timber, and gems. This involvement has grown over time, despite the fact that since its inception in 1994 and as a product of the brutality and chaos of the 1990s civil war, the Taliban defined its purpose as improving governance in Afghanistan and acting against the rampant criminality that swept the country.

During the administration of President George W. Bush, it was the Taliban’s involvement in the drug economy that received most international attention out of all the illicit economies, corruption, and predatory criminality that went on in Afghanistan. Yet the chosen counternarcotics policies failed to accomplish their stated goal of bankrupting the Taliban and turned out highly counterproductive. Far from delegitimizing the Taliban in the eyes of local populations as a mere drug cartel, efforts to eradicate opium poppy cultivation and the type of interdiction chosen to go after smuggled drugs and traffickers allowed the Taliban to present itself a protector of people’s livelihoods—giving it significant political capital.

Thus, the international community mounted the most intense efforts against precisely the wrong type of illicit economy and criminality: the labor-intensive poppy cultivation that underpins much of the country’s economic growth and provides elemental livelihoods and human security to vast segments of the rural population. Instead, the anti-crime efforts should have focused on the predatory criminality and non-labor intensive aspects of transactional crimes, such as drug smuggling.

Instead, the anti-crime efforts should have focused on the predatory criminality and non-labor intensive aspects of transactional crimes, such as drug smuggling.

The Obama administration at least de-funded eradication, but its efforts against predatory crime ultimately proved unsatisfactory. They were held hostage to the administration’s own strategic decisions to define the Afghanistan mission as one of limited counterterrorism. It de-emphasized state-building and imposed restrictive deadlines on U.S. assistance, particularly military. Washington and the international community did attempt several anti-organized-crime and anti-corruption initiatives. One of the most visible tools became the military’s anti-corruption task force, Shafafiyat (Transparency), headed by then-Brigadier General H.R. McMaster. Building on a previous International Security Assistance Force (ISAF) task force to investigate corruption surrounding ISAF’s contracting, Shafafiyat had a broad mandate to lead ISAF’s investigations into all aspects of corruption in Afghanistan. But ultimately hamstrung by both political complexities in Afghanistan and the significant drop-off of ISAF’s focus on corruption and governance a year later due to pressing timelines—and the ever more difficult and obstructive then-President Hamid Karzai—this anti-corruption body also has struggled to make more than a sporadic difference.

The creation of the National Unity Government after the highly contested and fraudulent 2014 presidential election represented a third possible inflection point to meaningfully tackle criminality that delegitimizes the post-2001 political dispensation. Despite the animosity between Ghani and Abdullah—and the impassioned constituencies behind them—there was optimism in Afghanistan and among its international partners that governance would improve after the Karzai years. After all, improving governance and reducing corruption was the one on which Ghani and Abdullah ostensibly agreed.

But so far, the NUG has failed to deliver robustly on these promises. Ghani and Abdullah were deeply beholden to corrupt elites without whose support they could not run in the elections, and on whose support they have continued to depend in power. Thus, two and half years after the formation of the NUG, not even one notorious powerbroker has been legally prosecuted or marginalized.

The anti-crime and anti-corruption measures that have been undertaken have hardly been robust enough. Ghani’s reopening of the notorious case of the fraudulent Kabul bank did not increase asset recovery. With determined international nudging, Ghani’s decision to suspend and clean up a $1 billion fuel contract for the Afghan Ministry of Defense was more successful. However, this important case and Ghani’s subsequent efforts to directly oversee Afghan government contracting at least at the national level have not yet translated into broader clean-up of the massive corruption, patronage, and ethnic favoritism that still pervade and severely weaken the Afghan security forces.

The tangle of ethnic divisions and rifts and competing patronage networks that for years have run through the Afghan security forces complicate any anti-corruption efforts. Under pressure from the international community—frustrated with the meager progress in fighting corruption and with an eye toward an important donors’ conference in Brussels in October 2016—the NUG also established a specialized anti-corruption court in 2016, called the Anti-Corruption Justice Center (ACJC). Perhaps the most significant anti-corruption and anti-crime accomplishment has been in tax and custom revenue recovery. Back in 2014, theft of revenues far exceeded that which characterized the Hamid Karzai era, debilitating the Afghan government. But the following year, the government delivered a spectacular turnaround in revenue generation: from an eight percent drop in 2014 to a 22 percent rise in 2015.

When international troops handed over security to the Afghans in 2014, there was a significant deterioration in security. This was particularly evident in the Taliban takeover of Kunduz in October 2015. That moment was a fourth inflection point to reverse predatory criminality and corruption. The Afghan elite, including its main powerbrokers in the north, were profoundly shook up by the Kunduz development. Although Ghani and Abdullah had been politically indebted to their backers and thus had a relatively weak hand, they could have come together in the aftermath of Kunduz to act against corruption within the Afghan National Security Forces and strengthen their power vis-à-vis predatory powerbrokers who had been engaged in tit-for-tat ethnic and tribal discrimination, land, revenue, resource theft, and extortion in the province for years, long fueling support for the Taliban. But once again, the opportunity was not seized.

Order of operations

Meanwhile, politics in Afghanistan remains fractious, self-interested, predatory, and engaged in constant brinksmanship at the expense of the national interest. This, in a country caught up in intensifying war and deep social and economic problems.

Given these missed inflection points and the basic balance of power in Afghanistan, I recommend this set of policy measures, elaborated in my report, for the remaining two and half years of the NUG:

Reducing corruption and improving governance, but in a prioritized manner: tackling first the most dangerous forms of corruption, including in the ANSF, against entire ethnic and tribal groups, and that which paralyzes any service delivery as opposed to merely taxing it;

Reining in the warlords and predatory criminality, once again in a prioritized manner without taking on the entire system by focusing on the most egregious forms of predatory crime, including extensive land theft, thuggish monopolistic domination of local economic markets, and rape and murder and the most egregious violators, targeting one powerbroker at a time; and

Continuing to properly sequence counternarcotics efforts, including maintaining a suspension of drug eradication.

]]>
By Vanda Felbab-Brown
Afghanistan is once again on the cusp of a bloody fighting season, which this year didn’t even relent during the winter. In fact, since 2014 the Taliban has mounted and sustained its toughest military campaign yet, and the war has become bloodier than ever. Extensive predatory criminality, corruption, and power abuse—not effectively countered by the Afghan government—have facilitated the Taliban’s entrenchment.
The transition choices by the Afghan government and the international community—including the embrace of problematic warlords for the sake of short-term military battlefield advantages, and as tools of political co-optation—shaped and reinforced criminality and corruption in the post-2001 Afghanistan. In turn, this delegitimized the post-Taliban political dispensation. Indeed, generalized predatory criminality in Afghanistan lies at the crux of Afghanistan’s dire and fragile predicament.
[G]eneralized predatory criminality in Afghanistan lies at the crux of Afghanistan’s dire and fragile predicament.
Missed opportunities
In a report for the United Nations University on the effects of crime and illicit economies on conflict and post-conflict dynamics in Afghanistan, I identify four possible inflection points where the international community and Afghan government could have fundamentally altered the course after the initial choices on the informal distribution of power and its connections to criminality were made in 2001: 1) the 2004 disarmament effort; 2) the beginning of the Obama administration and its surge of resources in Afghanistan; 3) the 2014 formation of the National Unity Government (NUG)—whose two protagonists, President Ashraf Ghani and CEO Abdullah Abdullah crucially campaigned on an anti-corruption platform; and 4) the October 2015 Taliban takeover of Kunduz City.
But the international community and the Afghan government failed to take advantage of these possible inflection points to tackle corruption and criminality, limit power abuse, strengthen the rule of law, and expand political inclusiveness. Or to the extent that they tried—such as during the first two years of the Obama administration—other strategic directives, timelines, and imperatives interfered with them and directly contradicted them. Thus, the anti-corruption and anti-criminality efforts were not underpinned by political heft and power, such as cutting off aid to or otherwise sanctioning particular powerbrokers.
Wrong moves
No doubt, the Taliban itself has become deeply involved in all kinds of illicit economies, including drugs, timber, and gems. This involvement has grown over time, despite the fact that since its inception in 1994 and as a product of the brutality and chaos of the 1990s civil war, the Taliban defined its purpose as improving governance in Afghanistan and acting against the rampant criminality that swept the country.
During the administration of President George W. Bush, it was the Taliban’s involvement in the drug economy that received most international attention out of all the illicit economies, corruption, and predatory criminality that went on in Afghanistan. Yet the chosen counternarcotics policies failed to accomplish their stated goal of bankrupting the Taliban and turned out highly counterproductive. Far from delegitimizing the Taliban in the eyes of local populations as a mere drug cartel, efforts to eradicate opium poppy cultivation and the type of interdiction chosen to go after smuggled drugs and traffickers allowed the Taliban to present itself a protector of people’s livelihoods—giving it significant political capital.
Thus, the international community mounted the most intense efforts against precisely the wrong type of illicit economy and criminality: the labor-intensive poppy cultivation that underpins much of the country’s economic growth and provides ... By Vanda Felbab-Brown
Afghanistan is once again on the cusp of a bloody fighting season, which this year didn’t even relent during the winter. In fact, since 2014 the Taliban has mounted and sustained its toughest military campaign yet, and ... https://www.brookings.edu/blog/order-from-chaos/2017/04/05/turkey-has-a-major-drug-problem-heres-how-to-get-a-handle-on-it/Turkey has a major drug problem—here’s how to get a handle on ithttp://webfeeds.brookings.edu/~/288212554/0/brookingsrss/topics/centralasia~Turkey-has-a-major-drug-problem%e2%80%94here%e2%80%99s-how-to-get-a-handle-on-it/
Wed, 05 Apr 2017 20:17:36 +0000https://www.brookings.edu/?p=395854

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By Mahmut Cengiz

As wars, migration, and other dynamics re-shape politics and security in the Middle East and Europe, Turkey has been a bridge country in many ways. But one challenge that has been understudied is the illegal drug trade in the country. It is a complex and multidimensional issue that poses public safety, national security, and public health threats and risks—and one that I explore in detail in a new report for the Brookings project Improving Global Drug Policy: Comparative Perspectives Beyond UNGASS.

The problem with being a land bridge

For decades, Turkey has grappled with serious challenges related to the trade and use of illicit drugs. Drug cultivation itself subsided in the 1970s, when poppy production was effectively licensed for the production of medical opiates, and illegal poppy cultivation and the diversion of opiates into the illegal trade. Today, illegal drug production today in Turkey is limited to cannabis, cultivated mainly for domestic consumption, and small amounts of captagon.

But it’s drug trafficking in Turkey that’s the real problem today. A variety of drugs are trafficked into and through Turkey each year, including heroin, cocaine, synthetic cannabis (bonsai), methamphetamine, and captagon (a type of amphetamine).

The trafficking has a very transnational flavor—a fact that’s hardly surprising, given Turkey’s proximity to key demand markets in Europe and the Middle East, as well as its location as a land bridge from supply countries like Afghanistan. Turkish drug trafficking groups have gained considerable power, global reach, and market control across Europe (particularly in heroin trafficking). And many other international drug trafficking groups also operate in Turkey—particularly Syrian entities, which have gained a newly significant role in Turkey’s illegal drug trade as civil wars in Iraq and Syria have reshaped smuggling routes. Turkey is thus a key vector of the smuggling route that carries Afghan heroin to the West through the Balkans.

Finally, drug trafficking networks in Turkey have diversified into and facilitated other forms of smuggling and illicit economies in Turkey, including the smuggling of Syrians to Western countries. Turkish drug trafficking groups are now involved in human smuggling, cigarette smuggling, and antiquities trafficking.

Ripple effects

Beyond criminality and corruption, drug trafficking in Turkey is a matter of national security. The drug trade has been a key source of terrorism financing in Turkey—the Kurdistan Workers’ Party (PKK), for example, is partly funded through drug trafficking, deriving perhaps as much as $300 million to $500 million from the drug trade annually in the late 1990s. The PKK’s involvement in drug trafficking dates back to the 1980s, when traffickers smuggling drugs from Iran through Turkey were required to pay a tax to the PKK, which controlled both sides of the Turkey-Iran border. Even in 2013, drug traffickers arrested in Turkey said it was impossible to cross the border without paying the PKK, and that only traffickers connected to the group could cross without paying.

Equally troubling, drug consumption is on the rise in Turkey, with a corresponding increase in the number of addicts. While cannabis and bonsai (a synthetic form of cannabis) are most frequently consumed, heroin use is also rising. Despite inadequate data, there is a widespread popular sense in Turkey, shared by Turkish law enforcement agencies, that drug use is reaching serious levels. However, the Turkish government has paid inadequate attention to drug use prevention and treatment, both of which are vastly underfunded and underdeveloped, while drug seizures and crackdowns on small-scale drug peddling have been overemphasized. Tens of thousands of people have been charged with drug trafficking for possession and sale of cannabis, for example. Harm reduction policies and even basic research and analysis, meanwhile, have been lacking.

A better way to tackle

Turkish drug policies remain mostly ineffective in responding to drug use, preventing drug trafficking in Turkey, and mitigating the threats it poses. As I detail in my new report, Turkish drug policies today are not effective, comprehensive, or integrated. This is all the more unfortunate since between 2002 and 2013, the criminal justice system, police, and drug policies in Turkey registered many improvements. After decades of political turmoil, weak governance capacity, and political interference in law enforcement, Turkish police and law enforcement agencies experienced significant modernization, institutional development, and robust growth in capacities during that decade.

These changes also resulted in more effective policies toward drug trafficking. Unfortunately, the improvements in policy design and capacity were eviscerated after December 2013, when the Turkish government purged the police forces and the judicial system following revelations of extensive corruption in the top levels of the Turkish government. Since then, whenever police operations have revealed corruption within the government, law enforcement and judiciary personnel have been fired.

Hard as it is—given the current political context in Turkey and the dismantling of rule of law there—Turkey needs to adopt fundamental reforms in its fight against the drug trade and its efforts to limit the negative effects of drug use. It should expand resources for and focus on harm reduction and demand reduction. Turkey should also strengthen the capacity and independence of its law enforcement and judiciary through improved laws, investigative procedures, and bolstered capacities. The government should improve anti-money-laundering and anti-corruption capacities, regional counternarcotics cooperation, border security, and the vetting of migrants and refugees in Turkey for connections to terrorism and organized crime.

]]>
By Mahmut Cengiz
As wars, migration, and other dynamics re-shape politics and security in the Middle East and Europe, Turkey has been a bridge country in many ways. But one challenge that has been understudied is the illegal drug trade in the country. It is a complex and multidimensional issue that poses public safety, national security, and public health threats and risks—and one that I explore in detail in a new report for the Brookings project Improving Global Drug Policy: Comparative Perspectives Beyond UNGASS.
The problem with being a land bridge
For decades, Turkey has grappled with serious challenges related to the trade and use of illicit drugs. Drug cultivation itself subsided in the 1970s, when poppy production was effectively licensed for the production of medical opiates, and illegal poppy cultivation and the diversion of opiates into the illegal trade. Today, illegal drug production today in Turkey is limited to cannabis, cultivated mainly for domestic consumption, and small amounts of captagon.
But it’s drug trafficking in Turkey that’s the real problem today. A variety of drugs are trafficked into and through Turkey each year, including heroin, cocaine, synthetic cannabis (bonsai), methamphetamine, and captagon (a type of amphetamine).
The trafficking has a very transnational flavor—a fact that’s hardly surprising, given Turkey’s proximity to key demand markets in Europe and the Middle East, as well as its location as a land bridge from supply countries like Afghanistan. Turkish drug trafficking groups have gained considerable power, global reach, and market control across Europe (particularly in heroin trafficking). And many other international drug trafficking groups also operate in Turkey—particularly Syrian entities, which have gained a newly significant role in Turkey’s illegal drug trade as civil wars in Iraq and Syria have reshaped smuggling routes. Turkey is thus a key vector of the smuggling route that carries Afghan heroin to the West through the Balkans.
Finally, drug trafficking networks in Turkey have diversified into and facilitated other forms of smuggling and illicit economies in Turkey, including the smuggling of Syrians to Western countries. Turkish drug trafficking groups are now involved in human smuggling, cigarette smuggling, and antiquities trafficking.
Ripple effects
Beyond criminality and corruption, drug trafficking in Turkey is a matter of national security. The drug trade has been a key source of terrorism financing in Turkey—the Kurdistan Workers' Party (PKK), for example, is partly funded through drug trafficking, deriving perhaps as much as $300 million to $500 million from the drug trade annually in the late 1990s. The PKK’s involvement in drug trafficking dates back to the 1980s, when traffickers smuggling drugs from Iran through Turkey were required to pay a tax to the PKK, which controlled both sides of the Turkey-Iran border. Even in 2013, drug traffickers arrested in Turkey said it was impossible to cross the border without paying the PKK, and that only traffickers connected to the group could cross without paying.
Equally troubling, drug consumption is on the rise in Turkey, with a corresponding increase in the number of addicts. While cannabis and bonsai (a synthetic form of cannabis) are most frequently consumed, heroin use is also rising. Despite inadequate data, there is a widespread popular sense in Turkey, shared by Turkish law enforcement agencies, that drug use is reaching serious levels. However, the Turkish government has paid inadequate attention to drug use prevention and treatment, both of which are vastly underfunded and underdeveloped, while drug seizures and crackdowns on small-scale drug peddling have been overemphasized. Tens of thousands of people have been charged with drug trafficking for possession and sale of cannabis, for example. Harm reduction ... By Mahmut Cengiz
As wars, migration, and other dynamics re-shape politics and security in the Middle East and Europe, Turkey has been a bridge country in many ways. But one challenge that has been understudied is the illegal drug trade in the ... https://www.brookings.edu/blog/order-from-chaos/2017/02/14/the-trump-administration-and-afghanistan-whats-in-the-poppy-leaves/The Trump administration and Afghanistan: What’s in the poppy leaves?http://webfeeds.brookings.edu/~/270816814/0/brookingsrss/topics/centralasia~The-Trump-administration-and-Afghanistan-What%e2%80%99s-in-the-poppy-leaves/
Tue, 14 Feb 2017 14:44:17 +0000https://www.brookings.edu/?p=363952

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By Vanda Felbab-Brown

Out with the old, in with the new, the Trump administration has decided on many issues. Perhaps not so on Afghanistan, where it is facing many of the same dilemmas as the Obama and George W. Bush administrations. Any new developments, meanwhile, tend to only make the picture worse.

Ghosts of security problems past

Neither the Obama nor the George W. Bush administrations had the strategic patience needed for stabilizing Afghanistan and reducing its internal security challenges—including the Taliban insurgency—to a level where the Afghan government could adequately cope on its own. The Bush administration shifted its focus to Iraq, under-resourcing Afghanistan and ignoring its unresolved structural problems.

The Obama administration, for its part, was preoccupied with not falling into a Vietnam-like quagmire and hoped to get the United States out of Afghanistan before Obama’s second term ended. As a result, it imposed unrealistic timelines on counterinsurgency and stabilization efforts that could not—and did not—produce the outcomes they were hoping for. Yet because the Taliban insurgency was robust and terrorist groups in the country—both al-Qaida and the Islamic State (splinter groups from the Taliban that adopted a new label)—were growing, the Obama administration did not dare pull the plug on its support for the country.

That leaves the Trump administration with an Afghanistan that looks a lot like the one previous presidents faced, with some challenges significantly exacerbated. The Taliban insurgency is stronger than ever and can persist for a long time. The Afghan government remains weak and critically dependent on foreign support: military, economic, and political. Without continued U.S. and Western military presence in the country, at least at the current level, the Afghan military might buckle. Even if that does not happen, the Taliban would be significantly strengthened by U.S. withdrawal. In fact, a total U.S. troop withdrawal could set off a civil war.

Same old Afghan politics

At the same time, the problems that soured U.S. support for the Afghan government (then led by Hamid Karzai) persist. Corruption is widespread and pernicious, and governmental dysfunction remains unresolved. Even though the current president Ashraf Ghani is motivated to tackle corruption and improve governance—and has a vision of national development—his reformist hand remains weak.

Throughout the halls of government (with the Orwellian misnomer “Government of National Unity”) and the alleyways of villages, Afghan politicians continue their self-serving political infighting and brinksmanship, rather than focus on the national interest. Although political infighting subsided when donors were summiting in the fall of 2016, it’s now back in force. Looking ahead to the presidential election in 2019, many are detached from much-needed efforts today to increase the functionality and performance of government.

These political struggles persist not merely at the level of broad ethnic groups and political constituencies such as between President Ghani and Chief Executive Abdullah Abdullah, but also increasingly within particular constituencies. Take Abdullah and Governor Atta Mohammad Nur, the governor of Balkh province: Although Atta used to be a backer of Abdullah and a key rival of Ghani’s, he is increasingly seeking to sideline his fellow Tajik Abdullah and position himself as a key national Tajik leader, with an eye toward the 2019 presidential elections. Rumors even have it he might contemplate running as Ghani’s principal vice-president. Many other maneuvers are preoccupying the political elite, once again at the expense of governance.

These constant political schemes and fights endlessly distract the country’s leaders and their clients within the Afghan society from addressing Afghanistan’s fundamental and governance weaknesses and internal security challenges.

Old-new regional politics

Afghanistan’s external security environment is even more difficult now than it was during the Obama and Bush years. Pakistan has not restrained its support for the Taliban and its vicious Haqqani branch. Moreover, the Pakistan-India rivalry, one of the factors crucially affecting Pakistan’s behavior toward Afghanistan, remains unabated. Iran continues to hedge its options: It dislikes the Taliban for sectarian reasons and, along with the Hazara community in Afghanistan, has many intensely bad memories of the Taliban era. But it also keeps a channel open to the Taliban, so as to counter the Islamic State and not have wholly-antagonistic relationship with a potential ruler (formal or not) on its border with Afghanistan.

Russia, with which President Trump wants to make nice in the world, is now openly supporting the Taliban, under the guise that the Taliban is a lesser enemy than the Islamic State. Significantly, Russia has begun to openly challenge the United States in Afghanistan—finding U.S. bases there a threat to the sphere of influence in Central Asia that it would like to resurrect.

It’s yet to be seen what the Trump’s administration policy in Afghanistan will look like. It might act on its leader’s “realist” impulses and pull out of Afghanistan even though U.S. allies—particularly Germany (which has faced waves of Afghan refugees) and the United Kingdom—do not want the United States to call it quits. A U.S. military withdrawal could avoid a confrontation with Russia there, though President Vladimir Putin may only feel emboldened in its aggressive anti-U.S. actions around the world. Additionally, terrorists—including anti-U.S. global jihadis—would reestablish themselves in Afghanistan while the Taliban augments its influence. The risks of the Afghan government collapsing and civil war breaking out would be high.

Alternatively, Trump may just muddle through. Facing all the same debilitating problems the two previous administrations encountered—and without any short-term prospect for the war to come to an end but with greatly diminished direct U.S. counterinsurgency operations, and thus fewer U.S. casualties—this option might just be the least bad and risky option for the new U.S. administration. As of today, given the mixed and only sporadic signals coming from the White House, it is too early to read the poppy leaves.

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By Vanda Felbab-Brown
Out with the old, in with the new, the Trump administration has decided on many issues. Perhaps not so on Afghanistan, where it is facing many of the same dilemmas as the Obama and George W. Bush administrations. Any new developments, meanwhile, tend to only make the picture worse.
Ghosts of security problems past
Neither the Obama nor the George W. Bush administrations had the strategic patience needed for stabilizing Afghanistan and reducing its internal security challenges—including the Taliban insurgency—to a level where the Afghan government could adequately cope on its own. The Bush administration shifted its focus to Iraq, under-resourcing Afghanistan and ignoring its unresolved structural problems.
The Obama administration, for its part, was preoccupied with not falling into a Vietnam-like quagmire and hoped to get the United States out of Afghanistan before Obama’s second term ended. As a result, it imposed unrealistic timelines on counterinsurgency and stabilization efforts that could not—and did not—produce the outcomes they were hoping for. Yet because the Taliban insurgency was robust and terrorist groups in the country—both al-Qaida and the Islamic State (splinter groups from the Taliban that adopted a new label)—were growing, the Obama administration did not dare pull the plug on its support for the country.
That leaves the Trump administration with an Afghanistan that looks a lot like the one previous presidents faced, with some challenges significantly exacerbated. The Taliban insurgency is stronger than ever and can persist for a long time. The Afghan government remains weak and critically dependent on foreign support: military, economic, and political. Without continued U.S. and Western military presence in the country, at least at the current level, the Afghan military might buckle. Even if that does not happen, the Taliban would be significantly strengthened by U.S. withdrawal. In fact, a total U.S. troop withdrawal could set off a civil war.
Same old Afghan politics
At the same time, the problems that soured U.S. support for the Afghan government (then led by Hamid Karzai) persist. Corruption is widespread and pernicious, and governmental dysfunction remains unresolved. Even though the current president Ashraf Ghani is motivated to tackle corruption and improve governance—and has a vision of national development—his reformist hand remains weak.
Throughout the halls of government (with the Orwellian misnomer “Government of National Unity”) and the alleyways of villages, Afghan politicians continue their self-serving political infighting and brinksmanship, rather than focus on the national interest. Although political infighting subsided when donors were summiting in the fall of 2016, it’s now back in force. Looking ahead to the presidential election in 2019, many are detached from much-needed efforts today to increase the functionality and performance of government.
These political struggles persist not merely at the level of broad ethnic groups and political constituencies such as between President Ghani and Chief Executive Abdullah Abdullah, but also increasingly within particular constituencies. Take Abdullah and Governor Atta Mohammad Nur, the governor of Balkh province: Although Atta used to be a backer of Abdullah and a key rival of Ghani’s, he is increasingly seeking to sideline his fellow Tajik Abdullah and position himself as a key national Tajik leader, with an eye toward the 2019 presidential elections. Rumors even have it he might contemplate running as Ghani’s principal vice-president. Many other maneuvers are preoccupying the political elite, once again at the expense of governance.
These constant political schemes and fights endlessly distract the country’s leaders and their clients within the Afghan society from addressing ... By Vanda Felbab-Brown
Out with the old, in with the new, the Trump administration has decided on many issues. Perhaps not so on Afghanistan, where it is facing many of the same dilemmas as the Obama and George W. Bush administrations.https://www.brookings.edu/research/a-glass-half-full-the-rebalance-reassurance-and-resolve-in-the-u-s-china-strategic-relationship/A glass half full: The rebalance, reassurance, and resolve in the U.S.-China strategic relationshiphttp://webfeeds.brookings.edu/~/216183436/0/brookingsrss/topics/centralasia~A-glass-half-full-The-rebalance-reassurance-and-resolve-in-the-USChina-strategic-relationship/
Tue, 25 Oct 2016 19:03:57 +0000https://www.brookings.edu/?post_type=research&p=339303

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By Michael E. O'Hanlon

What is the state of the U.S.-China security relationship as President Obama’s term in office concludes? Given the centrality of this relationship to the future of the region and indeed the planet, as well as the emphasis that President Obama has appropriately placed upon it, the question bears asking at this milestone in history.

In Obama’s first term, his administration articulated a policy of pivoting or rebalancing to the Asia-Pacific region, not only in security terms but in regard to broader economic and political issues as well. Over the course of his presidency, China arguably reached near-superpower status by some measures, with a GDP roughly equal to America’s in purchasing power parity terms and nearly two-thirds as great by standard exchange-rate-based metrics. The People’s Republic of China’s (PRC) military budget is now clearly the second greatest in the world, and China has used these additional resources to streamline and modernize increasingly high-technology armed forces. China is the world’s top manufacturer by a considerable margin, and is also enhancing its indigenous research and development activities—while also continuing to take intellectual property from others on a large scale, it must be said. President Xi Jinping’s leadership is now firmly established, and the confidence with which China conducts itself on the world stage is rather striking.

President Obama’s rebalance strategy has set the context for much of the evolution of U.S.-China relations over the past five years. It has been generally well received among Americans of both parties and among American allies in Asia as well. It would seem, at least in much of its essence, to have a good chance of enduring for many years to come.
Yet whatever the wisdom of the rebalance, not all is well in U.S.-China relations. Many Americans see a China that is becoming dangerous in the South China Sea and East China Sea in particular—with even broader and greater ambitions perhaps beginning to develop deep within the Middle Kingdom as the PRC’s power grows. Many Chinese see a United States that is bent on world predominance and, most of all, regional hegemony maintained in conjunction with allies such as Japan. And when the United States talks of rebalance or pivot, many Chinese hear “containment”—carried out at their country’s expense. Other factors can intercede negatively as well. For example, North Korea’s nuclear provocations, including two tests in 2016 to date, amplify other dangers that can affect both China and the United States—and highlight the significance of difference in their preferred approaches to regional security.

In this paper, which builds on a book that I had the privilege of co-authoring with former Deputy Secretary of State James Steinberg in 2014, I attempt a net assessment of the U.S.-China security relationship in the context of the rebalance, and measured against the agenda that Steinberg and I proposed. The focus is squarely on security matters. This paper focuses on regional hotspots and possible contingencies, as well as on patterns of operational interaction, confidence-building measures, communications mechanisms, and engagement. A longer paper I am also writing this year, from which this essay is drawn, considers a somewhat broader range of security issues and reaches a similar conclusion.

The agenda that Secretary Steinberg and I developed drew of course on the ideas of others, and on existing U.S. policy objectives, but also sought to expand upon them and knit them together in a cohesive whole. Our goal—as the book’s title of “Strategic Reassurance and Resolve” suggests— was to recommend ways that Beijing and Washington could manage their relationship, and their competition, through the complementary tools of reassurance and resolve.

The paper’s main argument is this: The U.S.-China security relationship is a work in progress, and recent trends are mixed. As challenging as things are in U.S.-China relations, however, they are not bad relative to what history might lead us to expect about how a rising power and an established power will get along. This is not a call for complacency. But it is a reminder to policymakers, pundits, and publics in both countries not to overreact at relatively minor offenses, or to lose historical perspective on where the relationship is today. The two countries are partly friends but also partly rivals. Their relationship will surely be complex for years, if not decades, to come. Yet it is being managed tolerably well, and can continue to be managed in a way that preserves general stability—provided that both sides, and key regional players like Japan, South Korea, the Philippines, Australia, and Taiwan, make the requisite efforts. At a time when voices in both countries—and particularly the United States during a presidential election year—sometimes call for much more assertive or confrontational policies by one of the countries towards the other, I would argue for relative caution and calm. Indeed, even if I am right that U.S.-China security relations should be seen as relatively acceptable on empirical grounds, a continuation of recent trends whereby each country is increasingly wary of the other could create a dangerous downward spiraling of relations anyway. Perceptions could supersede objective reality. The so-called security dilemma could increasingly influence the relationship; fears could snowball and lead to a dangerous action-reaction cycle. Part of this essay’s purpose is to warn about the dangers of such potentially ill-founded and negative perceptions, without papering over the real problems between Beijing and Washington that require attention.

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https://www.brookings.edu/wp-content/uploads/2016/10/us_china_delegation001.jpg?w=270By Michael E. O'Hanlon
What is the state of the U.S.-China security relationship as President Obama’s term in office concludes? Given the centrality of this relationship to the future of the region and indeed the planet, as well as the emphasis that President Obama has appropriately placed upon it, the question bears asking at this milestone in history.
In Obama’s first term, his administration articulated a policy of pivoting or rebalancing to the Asia-Pacific region, not only in security terms but in regard to broader economic and political issues as well. Over the course of his presidency, China arguably reached near-superpower status by some measures, with a GDP roughly equal to America’s in purchasing power parity terms and nearly two-thirds as great by standard exchange-rate-based metrics. The People’s Republic of China’s (PRC) military budget is now clearly the second greatest in the world, and China has used these additional resources to streamline and modernize increasingly high-technology armed forces. China is the world’s top manufacturer by a considerable margin, and is also enhancing its indigenous research and development activities—while also continuing to take intellectual property from others on a large scale, it must be said. President Xi Jinping’s leadership is now firmly established, and the confidence with which China conducts itself on the world stage is rather striking.
President Obama’s rebalance strategy has set the context for much of the evolution of U.S.-China relations over the past five years. It has been generally well received among Americans of both parties and among American allies in Asia as well. It would seem, at least in much of its essence, to have a good chance of enduring for many years to come.
Yet whatever the wisdom of the rebalance, not all is well in U.S.-China relations. Many Americans see a China that is becoming dangerous in the South China Sea and East China Sea in particular—with even broader and greater ambitions perhaps beginning to develop deep within the Middle Kingdom as the PRC’s power grows. Many Chinese see a United States that is bent on world predominance and, most of all, regional hegemony maintained in conjunction with allies such as Japan. And when the United States talks of rebalance or pivot, many Chinese hear “containment”—carried out at their country’s expense. Other factors can intercede negatively as well. For example, North Korea’s nuclear provocations, including two tests in 2016 to date, amplify other dangers that can affect both China and the United States—and highlight the significance of difference in their preferred approaches to regional security.
In this paper, which builds on a book that I had the privilege of co-authoring with former Deputy Secretary of State James Steinberg in 2014, I attempt a net assessment of the U.S.-China security relationship in the context of the rebalance, and measured against the agenda that Steinberg and I proposed. The focus is squarely on security matters. This paper focuses on regional hotspots and possible contingencies, as well as on patterns of operational interaction, confidence-building measures, communications mechanisms, and engagement. A longer paper I am also writing this year, from which this essay is drawn, considers a somewhat broader range of security issues and reaches a similar conclusion.
The agenda that Secretary Steinberg and I developed drew of course on the ideas of others, and on existing U.S. policy objectives, but also sought to expand upon them and knit them together in a cohesive whole. Our goal—as the book’s title of “Strategic Reassurance and Resolve” suggests— was to recommend ways that Beijing and Washington could manage their relationship, and their competition, through the complementary tools of reassurance and resolve. ... By Michael E. O'Hanlon
What is the state of the U.S.-China security relationship as President Obama’s term in office concludes? Given the centrality of this relationship to the future of the region and indeed the planet, as well as the ... https://www.brookings.edu/blog/techtank/2016/08/29/financial-inclusion-progress-and-possibilities-in-southeast-and-central-asia/Financial inclusion progress and possibilities in Southeast and Central Asiahttp://webfeeds.brookings.edu/~/187756278/0/brookingsrss/topics/centralasia~Financial-inclusion-progress-and-possibilities-in-Southeast-and-Central-Asia/
Mon, 29 Aug 2016 11:30:55 +0000https://www.brookings.edu/?p=329265

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By Robin Lewis, John Villasenor, Darrell M. West

As in the 2015 Brookings Financial and Digital Inclusion Project (FDIP) Report, none of the FDIP countries in Asia placed among the top five countries in the scorecard component of the second annual FDIP report. The FDIP scorecard assessed the 26 FDIP focus countries on four dimensions of financial inclusion, including country commitment to advancing access to and usage of formal financial services; mobile capacity; the regulatory environment for financial services (particularly with respect to digital financial services); and the adoption of selected traditional and digital financial services.

With that said, trends across several FDIP countries in Southeast and Central Asia reflect positive developments in the global financial inclusion ecosystem. For example, according to the World Bank’s Global Financial Inclusion (Global Findex) database, account penetration among adults living in the poorest 40 percent of households in Vietnam and Indonesia more than doubled between 2011 and 2014.

Moreover, of the six countries in the FDIP country sample that demonstrated either gender parity in terms of account ownership at formal financial institutions or a greater percentage of women than men who reported holding formal financial institution accounts, according to the 2014 Global Findex, three of these countries were located in Southeast Asia: Indonesia, the Philippines, and Vietnam.

It is also noteworthy that the Philippines came very close to placing in the top five on the 2016 scorecard, primarily driven by progress within the country commitment and mobile capacity dimensions of the scorecard. These advances increased the country’s overall score by 8 percentage points—the greatest scoring improvement among any of the 26 countries in the FDIP sample.

More broadly, aspects of the financial and digital ecosystems within the FDIP countries in Southeast and Central Asia demonstrate the opportunities and challenges facing the financial inclusion communities in these countries and beyond. We explore a few highlights below for each of the four FDIP countries, in descending order by overall score.

The Philippines

As noted above, the Philippines achieved the greatest scoring increase of any FDIP country, securing an overall score of 76 percent—the highest earned by any of the FDIP countries in Asia. Moreover, the Philippines received the highest regulatory environment score of any of the FDIP countries in Asia, at 100 percent (the Philippines was one of only three FDIP countries overall to achieve a regulatory environment score of 100 percent).

Examples of factors that drove the increase in the Philippines’ overall score include the launch of a national financial inclusion strategy in July 2015 by the Bangko Sentral ng Pilipinas (BSP), as well as the country’s robust performance in terms of mobile capacity (particularly with respect to unique mobile subscribership and 3G mobile network coverage). Along with Indonesia, the Philippines was the only lower middle income country in the FDIP sample to receive a top score for its level of smartphone adoption. On the adoption side, as of 2014 the Philippines held the highest adoption rate of mobile money accounts across the FDIP countries in Southeast Asia.

While the Philippines has engaged in considerable efforts to advance financial inclusion (as noted in the BSP’s “Financial Inclusion Initiatives 2015” report, among other publications), opportunities for growth in terms of financial access and usage remain—particularly considering that financial account ownership among adults was at 31 percent as of 2014, and about 13 percent of cities and municipalities in the Philippines do not have at least one financial access point.

Moving forward, data collection initiatives, including the 2015 National Baseline Survey on Financial Inclusion (the first nationally representative survey of Filipino adults dedicated to collecting demand-side financial inclusion data), will help public and private sector financial inclusion stakeholders better identify market opportunities and barriers to financial inclusion. Additionally, efforts to promote mobile money platform interoperability are expected to enhance convenience and flexibility for customers, which in turn may drive greater adoption of mobile money services.

Turkey

Turkey earned a score of 72 percent on the overall FDIP scorecard, with the country commitment dimension serving as its highest-scoring area (89 percent). While Turkey has not made specific commitments under the Maya Declaration on Financial Inclusion—a key vehicle for many countries in establishing financial inclusion targets—the Undersecretariat of Treasury joined the Alliance for Financial Inclusion as a principal member in November 2013. Turkey also committed to the G20’s Financial Inclusion Peer Learning Program during the G20 Los Cabos Summit in 2012

In 2014, Turkey launched its national financial inclusion strategy. Additionally, Turkey has made concrete commitments to advancing women’s financial inclusion in particular. For example, Turkey was recognized by the Alliance for Financial Inclusion and Women’s World Banking for including a focus on women within its comprehensive financial literacy program. Turkey also committed to the GSMA’s Connected Women Commitment Initiative, launched in February 2016, which seeks to connect millions of women in low- and middle-income countries to mobile internet and mobile money services by 2020.

Promoting access to and usage of formal financial services among women is a vital component of advancing financial inclusion in Turkey, particularly given that as of 2014 there was about a 25 percentage point gap in financial account ownership between men and women in Turkey—one of the highest gender gaps among the 26 FDIP countries.

Moving forward, establishing agent banking guidelines could help Turkey expand the distribution network for financial services. Additionally, Turkey’s significant refugee population raises important questions regarding how Turkey can best facilitate access to quality financial services among these individuals. The scale of this issue is considerable: With 2.5 million refugees in Turkey as of 2015, Turkey has hosted the largest number of refugees of any country in the world for two consecutive years. As noted in the 2016 FDIP Report, refugees and marginalized migrants face a unique constellation of challenges with respect to financial access and usage. Public and private sector stakeholders should carefully consider how best to mitigate those barriers—for example, through the advancement of inclusive digital identification mechanisms and policies that consider the language and cultural identities of individual refugees.

Indonesia

With an overall score of 71 percent, Indonesia’s highest-scoring areas on the 2016 scorecard were the mobile capacity and regulatory environment dimensions. Indeed, Indonesia tied for first place on the mobile capacity dimension of the scorecard, earning 94 percent of the total possible points. This robust score was fueled in part by Indonesia’s high levels of mobile subscribership (Indonesia is among the largest mobile markets in the world) and smartphone penetration. Indonesia is also a standout with respect to mobile money platform interoperability, which the country implemented in 2013—one of the first countries in the world to do so.

Particularly given that it features one of the largest populations in the world distributed over thousands of islands, digital financial mechanisms can provide significant utility in Indonesia by extending the reach of formal financial services. Since instituting readily accessible financial infrastructure across a dispersed population and geography yields considerable challenges, digital financial services such as mobile money can have a transformative impact by enabling individuals to engage in financial activities that might prove prohibitively inconvenient or expensive through more traditional pathways (e.g., traveling to brick and mortar banks).

With respect to the country’s regulatory environment, Indonesia’s public and private sectors have promoted innovative approaches to the design and delivery of financial services—for example, by permitting nonbank entities to issue electronic money. However, disaggregating regulatory oversight for digital financial services into branchless banking and electronic money spheres and including certain parameters within electronic money and branchless banking guidelines that may restrict the entry of diverse providers (as well as the establishment of an even playing field for these providers) may serve as constraining factors upon Indonesia’s financial inclusion growth.

Moving forward, harmonizing the electronic money and branchless banking guidelines to enhance regulatory clarity and advance a level playing field for financial service providers could accelerate financial inclusion in Indonesia, particularly given the country’s fairly robust digital infrastructure.

Vietnam

Vietnam was added to the list of FDIP countries for 2016, along with the Dominican Republic, Egypt, El Salvador, and Haiti. With an overall score of 61 percent, Vietnam was the lowest-scoring country among the FDIP countries in Southeast and Central Asia. Vietnam’s highest-scoring dimension was the mobile capacity dimension, at 78 percent. Factors that contributed to Vietnam’s mobile capacity performance included the introduction of mobile wallet initiatives in December 2014 that offer a fairly diverse array of services, as well as robust rates of unique mobile subscribership and 3G network coverage.

Given the extent of mobile capacity in Vietnam and the demand for basic payment transfers and other financial services, there is considerable opportunity to augment adoption of digital financial services. However, one issue impeding greater adoption of mobile money services in particular is that awareness of mobile money is considerably lower in Vietnam than in other Asian countries such as Bangladesh and Indonesia. Engaging in public and private sector initiatives to advance familiarity with, and understanding of, digital financial services could help drive adoption of these services among those who are at the margins of—or excluded from—the formal financial system.

In terms of country commitment, Vietnam could enhance its score in the future by participating in financial inclusion knowledge-sharing networks (e.g., the Alliance for Financial Inclusion). Engaging with key financial inclusion stakeholders from geographically, politically, and economically diverse countries could provide Vietnam with support in developing and implementing a national financial inclusion strategy, as well as in considering pathways for fostering a regulatory environment that is conducive to the introduction and adoption of innovative branchless banking solutions.

By engaging with the international community more extensively on key financial inclusion issues and establishing strategic commitments to advancing financial inclusion, the government of Vietnam could help generate greater regulatory and policy capacity to advance access to and usage of secure, affordable formal financial services—with the ultimate objective of enhancing the financial health and well-being of individuals and communities.

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By Robin Lewis, John Villasenor, Darrell M. West
As in the 2015 Brookings Financial and Digital Inclusion Project (FDIP) Report, none of the FDIP countries in Asia placed among the top five countries in the scorecard component of the second annual FDIP report. The FDIP scorecard assessed the 26 FDIP focus countries on four dimensions of financial inclusion, including country commitment to advancing access to and usage of formal financial services; mobile capacity; the regulatory environment for financial services (particularly with respect to digital financial services); and the adoption of selected traditional and digital financial services.
With that said, trends across several FDIP countries in Southeast and Central Asia reflect positive developments in the global financial inclusion ecosystem. For example, according to the World Bank’s Global Financial Inclusion (Global Findex) database, account penetration among adults living in the poorest 40 percent of households in Vietnam and Indonesia more than doubled between 2011 and 2014.
Moreover, of the six countries in the FDIP country sample that demonstrated either gender parity in terms of account ownership at formal financial institutions or a greater percentage of women than men who reported holding formal financial institution accounts, according to the 2014 Global Findex, three of these countries were located in Southeast Asia: Indonesia, the Philippines, and Vietnam.
It is also noteworthy that the Philippines came very close to placing in the top five on the 2016 scorecard, primarily driven by progress within the country commitment and mobile capacity dimensions of the scorecard. These advances increased the country’s overall score by 8 percentage points—the greatest scoring improvement among any of the 26 countries in the FDIP sample.
More broadly, aspects of the financial and digital ecosystems within the FDIP countries in Southeast and Central Asia demonstrate the opportunities and challenges facing the financial inclusion communities in these countries and beyond. We explore a few highlights below for each of the four FDIP countries, in descending order by overall score.
The Philippines
As noted above, the Philippines achieved the greatest scoring increase of any FDIP country, securing an overall score of 76 percent—the highest earned by any of the FDIP countries in Asia. Moreover, the Philippines received the highest regulatory environment score of any of the FDIP countries in Asia, at 100 percent (the Philippines was one of only three FDIP countries overall to achieve a regulatory environment score of 100 percent).
Examples of factors that drove the increase in the Philippines’ overall score include the launch of a national financial inclusion strategy in July 2015 by the Bangko Sentral ng Pilipinas (BSP), as well as the country’s robust performance in terms of mobile capacity (particularly with respect to unique mobile subscribership and 3G mobile network coverage). Along with Indonesia, the Philippines was the only lower middle income country in the FDIP sample to receive a top score for its level of smartphone adoption. On the adoption side, as of 2014 the Philippines held the highest adoption rate of mobile money accounts across the FDIP countries in Southeast Asia.
While the Philippines has engaged in considerable efforts to advance financial inclusion (as noted in the BSP’s “Financial Inclusion Initiatives 2015” report, among other publications), opportunities for growth in terms of financial access and usage remain—particularly considering that financial account ownership among adults was at 31 percent as of 2014, and about 13 percent of cities and municipalities in the Philippines do not have at least one financial access point.
Moving forward, data collection initiatives, including the 2015 National Baseline Survey on Financial Inclusion (the first ... By Robin Lewis, John Villasenor, Darrell M. West
As in the 2015 Brookings Financial and Digital Inclusion Project (FDIP) Report, none of the FDIP countries in Asia placed among the top five countries in the scorecard component of the second annual ... https://www.brookings.edu/experts/fiona-hill/Fiona Hillhttp://webfeeds.brookings.edu/~/460514546/0/brookingsrss/topics/centralasia~Fiona-Hill/
Thu, 07 Jul 2016 16:57:13 +0000https://www.brookings.edu/experts/fiona-hill/

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By admin

Fiona Hill is on a leave of absence from Brookings. Hill directed the Center on the United States and Europe from 2009-2017.

From 2006 to 2009, she served as national intelligence officer for Russia and Eurasia at The National Intelligence Council. She is a frequent commentator on Russian and Eurasian affairs, and has researched and published extensively on issues related to Russia, the Caucasus, Central Asia, regional conflicts, energy, and strategic issues. She is co-author of the second edition of “Mr. Putin: Operative in the Kremlin” (Brookings Institution Press, 2015).

Prior to joining Brookings, Hill was director of strategic planning at The Eurasia Foundation in Washington, D.C. From 1991 to 1999, she held a number of positions directing technical assistance and research projects at Harvard University’s John F. Kennedy School of Government, including associate director of the Strengthening Democratic Institutions Project, director of the Project on Ethnic Conflict in the Former Soviet Union, and coordinator of the Trilateral Study on Japanese-Russian-U.S. Relations.

Hill has published extensively on issues related to Russia, the Caucasus, Central Asia, regional conflicts, energy, and strategic issues. Her book with Brookings Senior Fellow Clifford Gaddy,“The Siberian Curse: How Communist Planners Left Russia Out in the Cold,” was published by Brookings Institution Press in December 2003, and her monograph, “Energy Empire: Oil, Gas and Russia’s Revival,” was published by the London Foreign Policy Centre in 2004. The first edition of “Mr. Putin: Operative in the Kremlin” was published by Brookings Institution Press in December 2013.

Hill holds a master’s in Soviet studies and a doctorate in history from Harvard University where she was a Frank Knox Fellow. She also holds a master’s in Russian and modern history from St. Andrews University in Scotland, and has pursued studies at Moscow’s Maurice Thorez Institute of Foreign Languages. Hill is a member of the Council on Foreign Relations, and a member of the board of trustees of The Eurasia Foundation.

Affiliations:
Council on Foreign Relations, member

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By admin
Fiona Hill is on a leave of absence from Brookings. Hill directed the Center on the United States and Europe from 2009-2017.
From 2006 to 2009, she served as national intelligence officer for Russia and Eurasia at The National Intelligence Council. She is a frequent commentator on Russian and Eurasian affairs, and has researched and published extensively on issues related to Russia, the Caucasus, Central Asia, regional conflicts, energy, and strategic issues. She is co-author of the second edition of “Mr. Putin: Operative in the Kremlin” (Brookings Institution Press, 2015).
Prior to joining Brookings, Hill was director of strategic planning at The Eurasia Foundation in Washington, D.C. From 1991 to 1999, she held a number of positions directing technical assistance and research projects at Harvard University’s John F. Kennedy School of Government, including associate director of the Strengthening Democratic Institutions Project, director of the Project on Ethnic Conflict in the Former Soviet Union, and coordinator of the Trilateral Study on Japanese-Russian-U.S. Relations.
Hill has published extensively on issues related to Russia, the Caucasus, Central Asia, regional conflicts, energy, and strategic issues. Her book with Brookings Senior Fellow Clifford Gaddy,“The Siberian Curse: How Communist Planners Left Russia Out in the Cold,” was published by Brookings Institution Press in December 2003, and her monograph, “Energy Empire: Oil, Gas and Russia’s Revival,” was published by the London Foreign Policy Centre in 2004. The first edition of “Mr. Putin: Operative in the Kremlin” was published by Brookings Institution Press in December 2013.
Hill holds a master’s in Soviet studies and a doctorate in history from Harvard University where she was a Frank Knox Fellow. She also holds a master’s in Russian and modern history from St. Andrews University in Scotland, and has pursued studies at Moscow’s Maurice Thorez Institute of Foreign Languages. Hill is a member of the Council on Foreign Relations, and a member of the board of trustees of The Eurasia Foundation.
Affiliations:
Council on Foreign Relations, member By admin
Fiona Hill is on a leave of absence from Brookings. Hill directed the Center on the United States and Europe from 2009-2017.
From 2006 to 2009, she served as national intelligence officer for Russia and Eurasia at The National ...